Top quality municipal bonds finished mixed on Wednesday, as the Federal Reserve voted to keep interest rates unchanged.

In the primary market, New York City swept into the marketplace with almost $1 billion in two deals that were well received by buyers.

Primary market
Bank of America Merrill Lynch priced and repriced New York City’s $900.56 million of Fiscal 2018 Series A general obligation bonds for institutions on Wednesday after holding a two day retail order period. The deal was increased from the originally planned $800 million.

The issue was repriced for institutions to yield from 0.89% with a 4% coupon in 2018 to 2.29% with a 5% coupon in 2028. On Tuesday, the bonds were priced for retail to yield from 0.90% with a 4% coupon in 2018 to 2.26% with a 5% coupon in 2028.

“We’re proud of the extremely strong investor demand this week, which saw individual investors’ orders exceed $420 million during the retail order period," said Jack Sterne, spokesperson for the New York City Comptroller’s Office. "This high level of interest enabled us to upsize the deal by $100 million, and with good follow through by institutional investors, we were able to bump yields on three maturities by two basis points on repricing. Once again, investors are recognizing New York City’s financial strength -- and we’re pleased they continue to invest in our city.”

The deal is rated Aa2 by Moody’s Investors Service and AA by S&P Global Ratings and Fitch Ratings. All three rating agencies assign a stable outlook to the bonds.

The city also competitively sold $60 million of Fiscal 2002 Series A Subseries A-10 taxable GOs as a remarketing. Morgan Stanley won the bonds with a true interest cost of 1.7981%

Since 2007, the Big Apple has sold $48.77 billion of securities, with the largest issuance occurring in 2008 when it sold $6.69 billion. The city saw a low year of issuance in 2011 when it sold $2.66 billion.

On Thursday, HJ Sims is expected to price the District of Columbia’s $129.16 million of Series 2017A revenue bonds for the Ingleside at Rock Creek project and Series 2017B convertible subordinate entrance fee principal redemption bonds.

RBC Capital Markets is expected to price the Reading School District, Pa.’s $101.7 million of Series 2017 GOs on Thursday.

Secondary market
As expected, the Federal Open Market Committee did not increase the fed funds rate target from the current 1% to 1.25% range, but it opened the door for a September announcement on balance sheet normalization.

"The Committee expects to begin implementing its balance sheet normalization program relatively soon, provided that the economy evolves broadly as anticipated," according to the statement. Previously, the Fed had said the normalization would start “this year.”

The Fed made basic comments with very few surprises, market observes said.

They have stayed on theme about the strengthening of the labor market and have assessed economic activity as “rising moderately.” The view of job gains is measured as “solid.”

Inflation continues to be where the emphasis is of late despite the dual mandate. The Fed fully appreciates that inflation remains below 2% but there is a belief that inflation will gravitate towards the 2% over the “medium term.” The conviction is that economic conditions will continue to evolve and any future recommendations will depend on the evaluation of incoming fresh data.

There is no change in the Fed’s portfolio at this point and the reinvestments will continue until further notice given the discussion in June of the intended gradual reductions in the holdings over time that will commence at a later date.

Municipal bonds reacted marginally on the news.

The yield on the 10-year benchmark muni general obligation rose one basis point to 1.94% from 1.93% on Tuesday, while the 30-year GO yield was unchanged from 2.73%, according to the final read of Municipal Market Data's triple-A scale.

Treasuries were stronger on Wednesday. The yield on the two-year Treasury dropped to 1.35% from 1.39% on Tuesday, the 10-year Treasury yield declined to 2.29% from 2.33% and the yield on the 30-year Treasury bond decreased to 2.90% from 2.91%.

The 10-year muni to Treasury ratio was calculated at 84.9% on Wednesday, compared with 83.0% on Tuesday, while the 30-year muni to Treasury ratio stood at 94.3% versus 93.9%, according to MMD.

MSRB: Previous session's activity
The Municipal Securities Rulemaking Board reported 39,595 trades on Tuesday on volume of $9.45 billion.

Gary Siegel and John Hallacy contributed reporting about the Federal Reserve to this report.

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